12
OPINION
A. Whether Petitioner Had A Sufficient Basis in Bob Wade Ford
To Claim Losses From the Corporation in 1988 and 1989
1. Petitioner's Basis in Bob Wade Ford in 1988 and 1989
Petitioner was the sole shareholder of Bob Wade Ford, a
subchapter S corporation in 1988 and 1989. Petitioners deducted
losses of Bob Wade Ford under section 1366(a). To be entitled to
deduct the losses, petitioners must show that Bob Wade Ford
sustained losses in the relevant years and that petitioners had a
basis in Bob Wade Ford in 1988 and 1989 at least equal to the
amount of the losses. Sec. 1366(d)(1).
A shareholder's deduction of losses from a subchapter S
corporation is limited to his or her adjusted basis in (a) stock
in the corporation and (b) debt owed by the corporation to the
shareholder. Sec. 1366(d)(1). A taxpayer's share of any S
corporation loss in excess of his or her adjusted basis may be
carried over indefinitely. Sec. 1366(d)(1) and (2). A loan from
a shareholder to an S corporation increases the shareholder's
basis if the shareholder makes an economic outlay and directly
incurs the indebtedness. Sec. 1366(d)(1)(B); Harris v. United
States, 902 F.2d 439, 442-443 (5th Cir. 1990); Estate of Leavitt
v. Commissioner, 875 F.2d 420, 422-423 (4th Cir. 1989), affg. 90
T.C. 206 (1988); Hitchins v. Commissioner, 103 T.C. 711, 714-715
(1994); Underwood v. Commissioner, 63 T.C. 468, 476 (1975), affd.
535 F.2d 309 (5th Cir. 1976). A loan from a shareholder's wholly
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